Spanish
banks, under pressure to cut property-backed debt, hold about 30
billion euros ($41 billion) of real estate that’s “unsellable,”
according to a risk adviser to Banco Santander SA (SAN) and five other lenders.

“I’m really worried about the small- and medium-sized banks whose business is 100 percent in Spain and based on real- estate growth,” Pablo Cantos, managing partner of Madrid-based MaC Group, said in an interview. “I foresee Spain will be left with just four large banks.”

Spanish
lenders hold 308 billion euros of real estate loans, about half of
which are “troubled,” according to the Bank of Spain. The central bank
tightened rules last year to force lenders to aside more reserves
against property taken onto their books in exchange for unpaid debts,
pressing them to sell assets rather than wait for the market to recover
from a four- year decline.

Land
“in the middle of nowhere” and unfinished residential units will take
as long as 40 years to sell, Cantos said. Only bigger banks such as
Santander, Banco Bilbao Vizcaya Argentaria SA (BBVA), La Caixa
and Bankia SA are strong enough to survive their real-estate losses, he
said. MaC Group is an adviser on company strategy focused on financial
services.

The banks will face increased pressure if Mariano Rajoy
becomes prime minister as expected after national elections on Nov. 20.
The People’s Party leader has said the “clean-up and restructuring” of
the banking system is his top priority as he seeks to fuel economic
recovery by boosting the credit supply.

...
Land in some parts of Spain is literally worthless, said Fernando
Rodriguez de Acuna Martinez, a consultant at Madrid- based adviser R.R. de Acuna & Asociados.
More than a third of Spain’s land stock is in urban developments far
from city centers. About 43 percent of unsold new homes are in these
areas, known as ex-urbs, while 36 percent are in coastal locations built
up during the real-estate boom.

“If
you take into account population growth for these areas, there’s no
demand for them, not now or in ten years,” he said. “Around 35 percent
of Spain’s land stock is in the ex- urbs, which means it’s actually
worth nothing.”

... Spanish home prices have fallen 28 percent on average from their peak in April 2007, according to a Nov. 2 report by Fotocasa.es,
a real-estate website, and the IESE business school. Land prices
dropped by more than 60 percent in the provinces of Lugo, A Coruna and
Murcia, and 74 percent in Burgos since the peak in 2006, data from the
Ministry of Development and Public Works showed. Land values fell 33
percent nationwide.

“If there were to be a proper mark to market of real estate assets, every Spanish domestic bank would need additional capital,” said Daragh Quinn, an analyst at Nomura Holdings Inc. in Madrid, in a telephone interview.

Santander
has 9.2 billion euros of foreclosed assets, followed by Banco Popular
SA with 6.05 billion euros, BBVA with 5.87 billion euros, Bankia with
5.85 billion euros, Banco Sabadell SA with 3.6 billion euros and Banco Espanol de Credito SA (BTO) with 3.36 billion euros, according to an analysis by Exane BNP Paribas.

...
Dozens of Spanish banks have failed or been absorbed since the economic
crisis ended a debt-fueled property boom in 2008. Spain’s bank-bailout
fund took over three lenders on Sept. 30, valuing them at zero to 12
percent of book value. Bank of Spain Governor Miguel Angel Fernandez
Ordonez said the overhaul of the industry was complete after 45 savings
banks merged into 15 and lenders increased capital levels.

...
The cost to the public of cleaning up the industry’s books has so far
been 17.7 billion euros in the form of share purchases from the
government bailout funds known as the FROB.

Banks
have made provisions for a potential 105 billion euros of writedowns
since the market crashed. Lenders may need to make another 60 billion
euros in provisions to clean up their balance sheets, including
real-estate debt, according to Rafael Domenech, chief economist for
developed nations at BBVA.

...“Since
the crisis began, banks have only put their lowest- quality assets on
sale while they waited for a recovery, so as not to sell the better
properties at a loss,” said Fernando Encinar, co-founder of Idealista.com, Spain’s largest property website. Idealista currently advertises 45,912 bank-owned homes in Spain, up from 29,334 in November 2010. In 2008 it didn’t list any.

Spain is struggling to digest the glut of excess homes in a stalling economy where joblessness is among the highest in Europe. Unemployment has almost tripled to 22.6 percent from a low of 7.9 percent in May 2009, according to Eurostat.

Property
transactions fell 28 percent in September from a year earlier, the
seventh consecutive month of decline, according to the National
Statistics Institute.

Financial
institutions have foreclosed on 200,000 homes and that will balloon to
as many as 600,000 in coming years as unemployment continues to rise,
according to a report by Taurus Iberica Asset Management, a Spanish mortgage servicer which manages 35,000 foreclosed properties for 25 lenders.

...
“Spain has 1 million new homes that won’t be completely absorbed by the
market until the middle of 2017,” Fernando Acuna Ruiz, managing partner
of Taurus Iberica, said in an interview in Madrid. “Prices will fall a
further 15 to 20 percent in the next two to three years.”

About 13 percent of Spain’s 25.8 million homes are vacant, according to LDC Group,
an Alicante-based specialist in real- estate management. The
hardest-hit areas are Madrid, with 337,212 empty properties, and
Barcelona with 338,645, LDC said in a report published yesterday.

Lack
of financing and concern about economic growth has choked investment in
Spanish commercial real estate, currently at its lowest level in a
decade, according to data compiled by U.K. property broker Savills Plc. (SVS)

A
total of 1.25 billion euros of offices, shopping malls, hotels and
warehouses changed hands in the first nine months, 52 percent less than a
year earlier, Savills estimated.

...
There is an “enormous” gap between prices offered by banks and what
investors are willing to pay, preventing sales of large property
portfolios, MaC Group’s Cantos said.

He
proposes that banks create businesses, in which they can hold a maximum
stake of 19 percent, that attract other investors to help dispose of
their real estate assets over five to eight years. The investors would
manage the businesses.

Cantos
says that prime assets can be sold at a 30 percent discount, while
portfolios comprised of land, residential and commercial real estate may
only sell after 70 percent discounts.

“Therein
lies the problem,” he said. “Banks have already provisioned for a 30
percent loss, but if you are selling at 70 percent discount, you have to
take another 40 percent loss. Which small and medium size banks can
take such a hit?”

Excerpted from yesterdays CRE post focusing on the Dutch, but suitable for most of the EU:

As clearly stated in the very first posts of the Pan-European sovereign debt crisis in 2010,
this is a pandemic contagion. The media's focus on specific countries
must be mollified and modified. Reference the first five posts of the
aforemetioned series, published a year and a half ago...

What
do you think happens when contagion spreads to Spain? Please don't tell
me you think that Italy, France, Greece, Portugal and Ireland are
having rate shit fits, but somehow Spain will remain unscathed - with
all of those NPAs and highly overvalued, uber leveraged, supposed assets
floating around in their bank's balance sheets?

I warned of this happening nearly three years ago. I issued several reports to subscribers.
Of course, about a quarter after I warned, Goldman comes around
(changing their stance of course, because they were bullish on European
banks, cough.. cough... nasty phlegm being held down...). Hey, has anyone ever told you that Goldman's investment advice SUX! Don't believe me? Well, follow the two links below, or you could just continue reading this article...

Over
a full year and a quarter after I warned of Spanish banks, and a full
quarter after I gave the full out warning of European banks in general,
guess who comes to the party late bearing stale party favors....

I
will attempt to illustrate the "Overbanked" argument and its
ramifications for the mid-tier sovereign nations in detail below and
over a series of additional posts.

Sovereign Risk Alpha: The Banks Are Bigger Than Many of the Sovereigns

This
is just a sampling of individual banks whose assets dwarf the GDP of
the nations in which they're domiciled. To make matters even worse,
leverage is rampant in Europe, even after the debacle which we are
trying to get through has shown the risks of such an approach. A sudden
deleveraging can wreak havoc upon these economies. Keep in mind that on
an aggregate basis, these banks are even more of a force to be reckoned
with. I have identified Greek banks with adjusted leverage of nearly 90x
whose assets are nearly 30% of the Greek GDP, and that is without
factoring the inevitable run on the bank that they are probably
experiencing. Throw in the hidden NPAs that I cannot discern from my
desk in NY, and you have a bank that has problems, levered into a
country that has even more problems.

Notice how Ireland is the nation with the second highest NPA to GDP
ratio. This was definitely not hard to see coming. In addition, Ireland
has significant foreign claims - both against it and against other
countries, many of whom are embattled in their own sovereign crisis.
This portends the massive exporting and importing of financial
contagion. Reference my earlier post, Financial Contagion vs. Economic Contagion: Does the Market Underestimate the Effects of the Latter?
wherein I demonstrate that Ireland's banking woes can easily
reverberate throughout the rest of Europe, affecting nations that many
pundits never bothered to consider. Irish banks will be selling off
assets, issuing assets and bonds in an attempt to raise capital just as
the Irish government (contrary to their proclamations) will probably be
issuing debt to recapitalize certain banks. This comes at a time when
the Eurozone capital markets will be quite crowded.

Expected
higher fiscal deficit and bond maturities due in 2010 have increased
the need for bond auction financing for all major European economies.
Amongst all major European economies, France and Italy have the highest roll over debt due for 2010 of €281,585 million and €243,586 million, respectively.

While Germany and France are expected to have the highest fiscal deficit of €125.1 billion and €96.0 billion,
respectively in absolute amount for 2010 (this is without taking into
consideration any possible bailout of Greece and/or the PIIGS, which
will be a very difficult political feat given the current fiscal
circumstances), Ireland and Spain are expected to have the highest fiscal deficit as percentage of GDP of 12% and 11%, respectively.
See our newly released Spanish fiscal analysis for a more in-depth
perspective, see our premium subscriber report on Spain's fiscal
condition and prospects: Spain public finances projections_033010 2010-03-31 04:41:22 705.14 Kb...

France
and Germany, Europe's two central powers, have stepped up their war of
words over whether the European Central Bank should intervene more
forcefully to halt the euro zone's debt crisis after modest bond
purchases failed to calm markets.

Will
someone explain to me why the world is so enamored with Goldman. It
appears that their research department is now recommending clients to
bet on European bank contagion risk. LTTP (Late to the Party), we first
warned on European bank risk in Spain with BBVA in January of last year (The Spanish Inquisition is About to Begin...).
Starting in January of this year, I went in depth into the European
contagion thing when practically all of the banks, pundits, analysts and
rating agencies said this was contained to Greece.

In
January of 2009, that's right - 35 months ago, I made it clear that
Spanish banks will suffer years from Spanish real estate bubble's that
had more effort behind being reblown than cured, coupled with I coined
the Pan-European Sovereign Debt Crisis a year later...

Jan.
27 (Bloomberg) -- Banco Bilbao Vizcaya Argentaria SA said
fourth-quarter profit slumped to 31 million euros from 519 million euros
a year earlier as the lender wrote down the value of some assets.

BBVA fell the most in eight months in Madrid trading after saying net income
fell to 31 million euros ($43.6 million) from 519 million euros a year
earlier, the Bilbao, Spain-based bank said in a filing today. That
missed the 1.05 billion-euro median estimate in a Bloomberg survey of
nine analysts as the bank took a 704 million-euro writedown for its U.S.
franchise.

BBVA
said it took the writedowns after analyzing its “most problematic
portfolios” as it prepares for a tough year with recessions in its
biggest markets of Spain and Mexico. This was foreseen nearly one year
ago, to date. This bank got caught up in the bear rally and apparently
(like many banks) was not deserving of the outrageous boost in the share
price. Reference the past analysis.

Declining
housing and stock prices, and rising unemployment levels are squeezing
consumer wealth globally and are expected to weigh heavily on the
banking system in the form of rising loan defaults. Until very recently,
the global banks have experienced most of the impact in the form of
distressed securities, capital shortages and funding problems, however
the problems have now started to engulf their consumer and commercial
loan portfolios as well.

In
Spain, BBVA, the second largest domestic bank, could see a massive
deterioration in its real estate and consumer loan portfolio. The
Spanish real estate sector is making a high horsepower a U-turn after
years of a massive housing bubble that has burst - culminating in an
unemployment rate that has risen to an outrageous 13.4% level. The power
skid is showing no signs of reaching an inflection point, and we
believe is only in the beginning throes of a sharp downturn. In
addition, the banks' other key growth areas including Mexico, the U.S
and South America are witnessing a slowdown in economic activity,
restricting BBVA's growth prospectus amid the current turbulent
environment. With increasingly challenging economic conditions in each
of these economies, BBVA's asset quality has deteriorated sharply with
non-performing loans rising to 36% of its tangible equity without
corresponding (equal) increase in provisions. As the bank deals with
these tough times ahead, we expect BBVA's bottom line growth to remain
subdued due to a slower credit off-take and higher provisions in the
coming quarters....

...

Key Highlights

Sharp slowdown seen in Europe -
According to the European Commission forecasts, the European economy is
expected to contract 1.9% in 2009 with a modest recovery in 2010.
Spain, in particular, is expected to be one of the worst hit due to the
humbling of its housing sector which had, for several years, been a
significant contributor to the country's economic growth. This will
impact BBVA by slowing down its credit and loan growth in addition to
significantly deteriorating the credit quality of its loan portfolio.

BBVA's asset quality is set to deteriorate rapidly as Spain enters recession -
Problems in Spain are more pronounced than in most of its European
counterparts. The Spain's budgetary deficit has already crossed the 3%
threshold limit set by the European Commission and is expected to cross
6% by 2009, only behind Ireland. The unemployment has reached a 12-year
high of 13.4% in November 2008, the highest in the Euro zone, while the
real estate sector bubble (particularly residential vacation homes
purchased by foreigners), the pillar of economic growth engine, has
burst. BBVA, with nearly 40% of its total loan exposure tied to real
estate & construction loans and individual loans in Spain could see
massive deterioration in its asset quality.

Besides Spain the bank has to deal with other challenging economies including Mexico and the U.S - In
3Q2008, U.S and Mexico contributed nearly 29% and 16% of total
revenues, respectively. The downturn in the U.S economy is showing no
signs of stabilization, with an unabated fall in housing prices and
frozen credit markets continuing to shatter consumer confidence.
Recession in the U.S has also led to a sharp slowdown in Mexico which is
highly dependent on US for exports and remittances. The slowdown in
both of BBVA's key markets will not only impact the pace of BBVA's
growth but also augment the risk profile for the bank as it now has to
deal with vagaries of these economies to navigate itself in these
turbulent times.

BBVA's NPAs have skyrocketed on back of economic slump - Since
January 2008, BBVA's non-performing loans have increased 92% to €6.5
bn. As at the end of 3Q2008, BBVA's loan losses as a percentage of
tangible equity stood at an astonishing 36%. Eyles test, a measure of
banks' delinquent loans (net of reserves) as percentage of its tangible
equity, has increased to 12% in 3Q2008 from 4% in 2Q2008. This sharp
rise in the bank's NPA levels, particularly in context of its lower
equity cushion, could substantially erode shareholders' equity.

Inadequate provisioning to impact BBVA's bottom line - Owing
to deteriorating loan portfolio, BBVA's NPAs have almost doubled to
2.0% of the total loans in 3Q2008 from 1.1% in 3Q2007. Despite an
increase in NPAs, the bank's provision has declined to 2.3% of the total
loans from 2.4% a year ago. As loan losses are expected to increase in
the wake of economic slowdown, BBVA will have to increase its provisions
considerably, denting its near-to-medium term net income.

For
those who haven't been to the Spanish coastal areas to see for
themselves or are not familiar with the Spanish situation, I have
included random research on Spain from pundits around the Globe!

Now, speaking of Spain, Pan-European pandemic and War... Yesterday, I gave an interview with Benzinga radio
wherein I referenced the distinct possibiity of European war as the
natural result of the collapse of the European banking and sovereign
debt system. You can hear the interview here. It appears that certain rather outspoken British MEPs have a very similar outlook.

That's not all. Here are two other occasions, one as recently as yesterday...

This is early 2010...

I've been asked in the past why I don't run for political offce. Well, the
answer is I'm just too damn honest and straightforward. I'd make this
guy look shy, and probably end up with a car bomb in trunk before
long... Has anyone ever seen the movie Bulworth, starring Warren Beatty?
If you haven't seen it, take six more minutes of your time to view this
clip before you move on...

And the British version of Bulworth returns as of yesterday. You can call
him whatever you want, but you have to call him right, as well...

And in closing, here are the two Dutch real estate videos I posted yesterday that were never released before...

QuietCorday. Old timers wouldn't have any interest. Spanish oldies have a very strong sense of togetherness, all go dancing together at fiestas, meet every night at the hogar de pensionista, have their favourite little bars and shops. These new developments were in the middle of nowhere, typically 5-10 miles outside an existing town.. Since no-one lives there there are no supporting facilities, shops, bars, etc. Then, because there is no money, the elevators don't work, the street lighting, etc. It feeds on itself. I can't think of a worse place to dump an oldie.

btw this is the most accurate take on the Spanish economic situation I have read. I live in Spain, semi retired, and drive a lot...thousands of miles a months just cruising around with my wife. even the tiniest village - population 500- has dozens of brand new apartments for sale. Once you get to a 100 000 pop town the new and unfinished apartments are in the thousands. As for Madrid, one drives for mile after mile through immaculate, well designed ghost cities. There apartments were all designed with young people in mind - but young people have unemployment of well over 40%. More like 75% in Andalucia. A huge percentage of the population were in construction - and then you have the factories making bathroom and kitchens and tiles and lighting factories - and then the people selling and installing them. This has all come to a stop. None of these people will get a job again in construction or supporting industries in their lifetimes. They will have to be retrained in.....what? Many are buggering off to Germany. The Spanish pretend that the housing market has only dropped a few percent but the fact is that NOBODY is buying at any price. The banks can't admit to the truth or they would have to re-do their balance sheets. All the vacation homes on the Costas designed with Brits, germans, Scandinavians in mind have dropped at least 50% in the last 3 years. And still no buyers because the sort of people who might like to buy are now mostly broke and can't raise loans. They have enough on their plates back in their own countries without having spare cash for exotic real estate adventures on the continent. And why would you buy when you can rent an empty 2 bed/2bath new one for 400 euros a week as owners are desperate to have some cash flow. And if you buy and Spain exits the Euro then you house presumably gets revalued in devalued pesetas. Who knows? Why take the risk?

Makes you wonder ... all this housing in Southern Europe vacant while young people still have to live with parents. Why don't these developers try and rent out ex-urb properties cheaply to old-timers? A) to make back at least something and B) clear the urban centres and suburbs?

Yes, it is wildly misallocated capital, but what else are they going to do? A lot of these properties will only last, at most, three decades, before they either need serious renovation work or pulling down. The South Med climate is harsh on concrete housing; they don't last long.

By 2017, a lot of this housing will be wrecked, fit for nothing but the bulldozer.

Developers share the blame too. They try and make commuter zones in the middle of farmland. Problem is gas is 10 bucks a gallon, no one can afford Fiat Pandas with the taxes. Unless the city can get a train system in there. oh well. Dumb banks, dumb people and dumb civic planning

Interesting discussion on Dutch Real Estate. Reggie clearly sees the short and long term issues-
The comment on China is really telling. As we deflate, China inflates their product prices to smooth out their previous dumping of product.
The US, which imported inflation of manufacturing to China, now will be paying the piper in higher prices.
We have been living in a low inflation dream as far as consumer products. That, with the crash in commodities and assets, is going to be super bad for China. Plus their ridiculous land bubble

They appear on my site before they appear anywhere else. This story ran on my site yesterday morning, and much of the content won't even appear on zero hedge due to its nature. You probably have to clear your browser cache and history to see new pages.

Nigel Farage- I am surprised his Range Rover hasn't gone up in smoke yet. He rails against the Trilaterals and Builderburg new oligarchical order daily.

I suspect they either get the euro nanny state run by the Germans(sad, all those millions died for nothing in the 30s and 40s) or
They all make a pile in conventional money shorting and going long their decisions.
Sort of how Nancy Pelosi makes her millions...front running. Neoliberalism is just an awesome spectacle of corruption.

I´m afraid the Mayans thought that the earth was a flat disk sitting on the back of a gigantic alligator. They most certainly didn´t have the slightest clue about any calendars. How scamsters have been able to sell those ignoramuses as some sort of cosmic geniuses is totally beyond me.

2012 stuff aside, the Mayans were excellent astronomers and kept complex calendars. New age interpretations are one thing , but history is another. Check out Aveni's book for a readable account that is skeptical of the hype but interesting wrt the history.

Just back from a fortnight in Almunecar/Andalusia. Rented "se vende" appartment costs $440,000 or $65,000 less if you circumvent the broker. No chance of selling anywhere near that price. How about $70,000? Nearly 1 in 20 homes for sale, nothing moves there. Took rented Yamaha 125cc motorcycle (PITA) up the mountains and had to pay $25 for one fish. But folks are friendly and the weather is OK, too, Everybody seemed to be very cool considering the economic desaster. They do not need to build more homes for a long time to come. TV full of nice broads talking, talking, talking about sex and society. Road conditions OK thanks EU. Warmer than Germany in winter but not much better. Maybe not the destination for retirement or staying during winter. Wireless internet access OK.

I agree. I think the "heated rhetoric" vis a vis Greece is just for starters. elections in Spain coming right up (outcome not in doubt as the Socialists are carted out the door)...the Socialists are out in Greece obviously...in Italy it's "the Mafioso." Interestingly he's been replaced by a far left technocrat who will "now run things out of Brussels"(?) That leaves only two: Ms Merkel and President Sarkozy. If there's a "falling out" or some other "chilling event" then the outcome is no longer in doubt: the EU and not just the euro is finished. That's just for STARTERS. Governments throughout the world have already "war-gamed" this so the only people for whom it will come as a surprise is you and me. We're way behind the curve...you people need to start picking up the slack around here. LET'S GET MOVING ZH'ERS!